The rating affirmations reflect the company’s strong risk-adjusted
capitalization. HIC’s capital and surplus nearly tripled to RMB 456
million (USD 67 million) in 2016. In late 2016, HIC received a
reinsurance recoverable of approximately RMB 290 million from a lawsuit
over the 2013 Hynix Wuxi factory fire in China. Apart from that, credit
risk in 2016 also decreased upon the settling of claims related to the
Port of Tianjin explosions in 2015.

The company’s loss ratio improved substantially in 2016 in the absence
of catastrophe losses compared with the higher claims severity in 2015
from the Tianjin explosions. However, HIC still has a high cost
structure that contributes to underwriting losses.

Offsetting rating factors include the company’s volatile results caused
by losses in its commercial lines over the past five years. HIC
maintains low retention and is highly dependent on reinsurance. In the
event of large losses, its gross leverage and reinsurance recoverable
(credit risk) increases substantially. This exerts pressure and
volatility on its risk-adjusted capitalization.

Positive rating action could occur if HIC displays sustained improvement
in its operating results. Negative rating action could occur if there is
a material decrease in risk-adjusted capitalization due to deterioration
in operating performance.

Ratings are communicated to rated entities prior to publication.
Unless stated otherwise, the ratings were not amended subsequent to that
communication.